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Which housing tenure receives most subsidy? Inside Housing readers know that the question isn’t a simple one and that the obvious answer – social housing – isn’t necessarily correct. The quest for a full analysis has just been boosted by housing finance experts Peter Williams and Steve Wilcox, whose report Dreams and Reality looks not just at support for housing investment but at all the other ways – benefits, taxation, tax relief and regulation – by which government interacts with the different sectors.

Since the global financial crisis, successive governments have felt compelled to intervene in the housing market, but instead of seeing the main problems as being an overall housing shortage and a crisis of affordability for those on modest incomes, recent initiatives have tried to tackle the weaknesses of the private market and the decline in home ownership. As a result, policies which were already distorted in favour of home owners have been added to with Help to Buy equity loans and ISAs, new tax reliefs for first-time buyers, and many more. Past weeks have seen a belated recognition of the need to boost affordable housing, with the prime minister promising a further £2 billion from 2022 onwards and also lifting the borrowing caps on council housing.

Does this mean that the weight of subsidy has now shifted away from the private market? When Dreams and Reality was completed, capital subsidy for private housing totalled £39 billion and for social housing about £11 billion over the five years to 2020/21. By the November Budget, which enabled us to look further ahead to 2022/23, support for the social sector had grown to about £15 billion. But the Budget also extended Help to Buy equity loans to 2022/2023 at an extra cost of over £8 billion. These and other changes mean that the total aimed at the private market has grown to around £55 billion over this period. So, and surely this is by chance, the split remains about the same. Private housing still gets an almost 80% share of what is now an even bigger subsidy cake.

Of course, as Dreams and Reality goes on to argue, the full picture is much more complicated once housing benefit, tax reliefs and regulation are taken into account. Tenants and their landlords receive about £23 billion annually in housing benefit, of which a bit more than one-third is spent in the private rented sector. The ‘safety net’ for home owners via support for mortgage interest payments is now very small. But home owners benefit hugely from tax reliefs, paying tax of about £10 billion but receiving reliefs worth some £39 billion. In contrast, private landlords pay net tax of at least £8 billion.

The report concludes that the overall subsidy to owners was running at around £34 billion annually before the last Budget, while social housing was getting £20-30 billion (depending whether or not the economic benefit of below-market rents is taken into account). On balance, private landlords and tenants were unsubsidised, getting around £8 billion annually in housing benefit but paying out a similar amount in taxes. Its conclusion is therefore that home owners are the most favoured tenure, followed fairly closely by the social sector and with private renting a poor third.

What the report really does, however, is begin to unravel the mess of government intervention in housing that stretches back for many decades. Often policy changes have been made in response to short-term problems (such as buy to let expanding too quickly) which have no regard to the bigger picture of how intervention favours one sector rather than another. Rarely does government look at the long-term impact of a new initiative (such changes in tax reliefs).

The clearest message from Dreams and Reality is that, if government were starting to work out its policies on spending, tax and regulation in housing from scratch, it certainly wouldn’t design a system that looks anything like the present one. The challenge is whether we can reshape it to better reflect the housing priorities of all those needing affordable housing, not just those of budding home owners.